First Fourplex Analysis

[Michael Nathanson]

Hi BP community,

I have been looking at a couple of 4plexs in the same area that have come up on the market near me recently. 2 of them are under contract (I had offered on them but never heard back since I offered much lower than asking). One went pending and came back on the market but it is higher priced than the others were. The one I am currently looking at is 260k list price. I would be using FHA financing and living in one unit

The numbers (my best estimate) would be:

Rent(current 2 units at 750/month, 1 at 700/month, 1 vacant)=2200

Potential rent(fully rented including my unit at 750)=3000

PITI=1800 (PMI is making this expensive, this is a rough estimate but should be accurate+/-100)

Maintenance=150 (5%)

Capex=150 (5% roof was just repaired and 3 units have new heaters)

Utilities=400 (best estimate for water sewage and trash seems high to me but would rather be conservative, this is what the last 4plex in the area I analyzed told me)

vacancy=300(10% again being conservative saying I will lose about 1 month per year)

management=300 (10% I will be selfmanaging at least while I live there but I want it to make sense financially with management)

cash flow=$300 (not counting me paying myself rent)

In these numbers I am assuming I increase the rent on the one unit that is currently below the others.  I would be putting around 16K out of pocket into the deal plus whatever initial maintenance.  I'm seeing a cash on cash of 22.5% which seems pretty good.  In reality I would be cash flowing $600+ since I would be managing it and I wouldn't have to worry about my own vacancy.

Is there something I am missing here?  Do you think this is a good deal to pursue?  My current rent is about $700 anyway so me taking up one unit would be pretty close to a wash as far as my personal cash flow, but I would be moving from a 1 bedroom to a 2 bedroom that I could also potentially find a roommate to further improve cashflow.

Any input is appreciated, thank you.

[Tim Herman]

@Michael Nathanson it meets the 1% rule. CAPEX doesn't change just because some things were just renovated. Repairs might be lower. Flooring lifespan 8 years. $5 a sf installed. 800sf*5=$4000. $4000/8/12= $42 a month. You have 4 floors=$168 per month just in floors. So if you are keeping this long term a new roof estimating $10000. Lifespan of 25 years= $33 per month. 2 items are already at $200 per month. You can calculate what you think your capex should be, changing the lifespan. Maybe they installed a 30 year roof or the laminate you put in will last 10 years. Most beginning investors underestimate their costs, don't be one of them.